Measuring purpose. The next key business imperative

In the first article in this series on purpose, we looked at the nature of purpose and espoused the view that purpose has two facets: functional (where it describes what the company must get done); and intentional (where it articulates what the company would like to see change in the wider world.) In this article, we look at how purpose and its impacts might be quantified and the benefits that a measurement system might bring.

For years we’ve had common measures and yardsticks for ascertaining the relative health of organisations. Some objective measures– like EBIDTA – and some more subjective but no less important – like stock prices. More recently, the Internet has become a measurement bonanza for business leaders and meta-trends like “big data”, highlighting just how much opportunity and potential lies in the ability to track every click, measure every interaction and derive sentiment and “truth” from every social engagement.

With such a bewildering array of data points to measure, how does a business leader choose the right set? No business would ever just measure CAPEX and leave OPEX uncalculated. So, how can a business leader ensure they’re measuring a balanced set of data points rather than just one’s that might give them an erroneous and biased view of their organization?

In particular, how do we find consistent and verifiable ways to measure intangibles like purpose? And why would we spend time tracking that measurement?

Firstly, there’s plenty of evidence to show that fuelling purpose fuels performance. According to Deloitte’s Culture of Purpose 2013 Report, a strong sense of purpose has been shown to contribute to long term success. Cultures with purpose report that their employees are more likely to perform well and the businesses concerned experience strong financial performance. They also have a distinct brand, a clearly defined values and belief system, greater customer satisfaction and better employee satisfaction. As far back as 2011, the father of organizational effectiveness John Kotter correlated “high performing cultures” and financial performance in his book Corporate Culture and Performance

The data is there and the recommendations pretty unambiguous.

So with all the lot of discussion about why it makes sense, who it affects and what it can be used for, why is it that putting metrics and measurement to purpose seems so elusive?

And what metrics might we use?

There are some suggestions in a recent article in MIT Sloan Management Review. Companies focused on customer focus might look to their Net Promoter Score for proof of whether their purpose is effective. But that strikes us as a blunt tool when used alone. For those that seek to put their employees first, the authors reference employee engagement scores. Again, a rather ambiguously defined metric and certainly not one operating to a universally consistent standard of measurement.

So, if we agree that “Purpose” is an aspirational goal for any organisation, something tantalisingly just beyond reach, shouldn’t the measures of success relate directly to the progress being made towards that purpose?

Case in point, if you’re IBM and you’re committed to a smarter planet, then the number of new patents, the levels of publishing and the dollars being invested in R&D are all good purpose-performance indicators. Perhaps peg those numbers as a percentage of EBITDA or even as part of the P/E ratio calculations. Look to at the correlations between outputs and profits. After all, if the Deloitte findings are correct, purposeful organisations should be capable of higher than average future earnings. If you’re Zappos, and your purpose is to deliver happiness through service, then those indicators would be things like staff churn, average tenure of customers, Net Promoter Scores and the numbers of repeat customers. Again, they show how the pursuit of happiness is benefitting the business.

So can we align pursuing purpose with metrics that provide clear proof of the impact on the business?

And if we can, why hasn’t it happened yet?

One of the key issues with purpose is that it has traditionally been expressed as an aspiration, and that aspiration has been isolated from the rest of the business. What’s been lacking is further drilldown that details what will be achieved, when and how. In other words, the financial impacts of the projections have been isolated from the purposeful impacts.

For example, Nike sees its purpose as being “To bring inspiration and innovation to every athlete in the world.” In order to quantify how the pursuit of that purpose boosts the bottom line (and therefore why purpose is good for the business), Nike would need to quantify the impact of inspiration, innovation and the number of athletes in the world on their bottom line. Remember, in Nike parlance, we are ALL athletes.

So … 10 questions that might go some way towards doing that:

What do we define as inspiration and what part do we play in that inspiration?

How many inspiring products do we sell (and therefore who do we inspire and to do what)?

What did those products cost to develop?

What do we make from them?

To what extent are we making money from products that continue to inspire vs those that are re-inspiring vs those that will inspire into the future?

What is the “inspiration” contribution of our product versus that of the sponsored athlete, high school jock, weekend warrior wearing it?

What innovations have we introduced in the last year for athletes?

How many of them have we sold?

What’s still in development and what are the projections for those products in the business case?

How quickly is our innovation cycle and being realized in terms of saleable goods and what effect are those innovations having on our bottom-line?

But is all this introspection about measurement worth it?

We believe so. While some may see quantifying the impact of aspiration as problematic, there is good precedent to pursue this.

There was a time when considering a “brand” as a legitimate asset on a balance sheet was considered heresy. Business today largely accepts the notion of “a brand is a genuine asset” as mainstream. Ergo, if purpose can galvanise employees to be more effective, entice partners and vendors to greater heights and drive disproportionate customer preference, loyalty and sales, doesn’t it behove us all to make more of an effort to try quantify its contribution?

Ultimately if purpose is to be embraced as a competitive force, those organisations that are genuinely putting it at the core of their strategy, must be able to demonstrate the rewards. To themselves. To their investors. And, let’s be honest, to a legion of business people who still remain skeptical about the power of purpose.

How are YOU measuring Purpose in your organisation? How do you correlate your purpose with your performance? We’d love to know.

Acknowledgements

Co-authored with Hilton Barbour, Freelance Strategist & Marketing Provocateur. Hilton has led global assignments ranging from Coca-Cola, IBM, Motorola and Enron to Ernst & Young and Nokia. Working as a freelance strategist allows him to satisfy his insatiable curiosity about business, people and trends. An avid blogger, Hilton’s personal mantra is “Question Everything”. Follow him at @ZimHilton.

We’re committed to a series of posts on this subject. Look for them over the next few weeks. Your feedback, comments and input are appreciated.